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How Will the Federal Reserve’s Decision Impact Americans
April 26, 2017
The Federal Reserve made a decision to raise its key short-term interest rate from 0.75% to 1% in March, which is the highest rate since 2008. This hike is only one of three anticipated for 2017. The Federal Reserve may reduce to only one more increase, if there is any sign that the economy is negatively impacted. However, the Federal Reserve is expected to have 2 more rate increases of 0.25% in 2017.
The Federal Reserve has a desire to get back to normal (or more normal) interest rates since the recession in 2007. What this means is that they anticipate increasing the short-term interest rate three quarter points in 2018 and the same in 2019 in order to bring the federal funds rate to 3%.
So what does this really mean?
Mortgage rates will rise. In fact, last year a 30 year fixed mortgage rate was 3.68%, but after the announcement of the Federal Reserve last month it jumped to 4.21%. The mortgage interest rates are expected to continue to rise to 4.5% by the end of 2017 and jump to 5.5% by 2018. Home buyers could be hit twice since the house prices are on the rise and expected to increase by 4.6% in 2017 and project that they will continue to increase in 2018.
Not only will it impact mortgage interest rates, but it will also impact auto loan rates by 0.25%. Although the auto loan rates will increase, it is doubtful that American’s will be downsizing due to the higher interest rate. The auto loan interest rate will increase a $25,000 loan only $9 per month on average.
In addition, anticipate credit card and home equity loans to also increase 0.25% from their current rates. The average credit card rate is currently 16.42 and a home equity loan is 5.21%. Although Americans will be anticipating their interest rates on loans to increase, don’t expect a rise in your savings accounts. The banks will not pay higher interest rates on customer deposits.
With the unemployment rate looming around 4.7% and inflation averaging 2%, the Federal Reserve is more confident in the progress of the economy. Salaries are also on the rise. In 2016, the average hourly rate increased by 2.8%. If you are hoping that the labor market conditions will strengthen due to the interest rates rising, don’t go spending that extra money yet. Some predict that in 2018, the average American salary will only increase by 2%.